Capacity, investment and market power in the economic value of energy firms

Vicente Salas-Fumás, Jorge Rosell-Martínez and José Manuel Delgado-Gómez

Energy Economics, 2016, vol. 53, issue C, 28-39

Abstract: Regulation of energy firms faces the complex problem of balancing private (earning a fair rate of return on investment) and public (assure safe and reliable supply of energy at the lowest possible costs) goals. Tobin's q is a forward looking indicator on investment opportunities and on market power of firms that energy regulators can use for more effective regulation. This paper presents the empirical evidence on the determinants of differences in observed values of Tobin's q for a sample of large listed energy firms from 10 different countries in the period 2000–2006. We find that adjustment costs represent around sixty percent of the difference between economic and book value of the assets for the representative firm, while rents from market power represent the other forty percent. Therefore, across countries there is room for regulatory actions aiming at reducing energy prices, but less than what may be inferred from the observed average q values.

Keywords: Economic value; Regulation of energy firms; Adjustment costs; Market power (search for similar items in EconPapers)
JEL-codes: G38 L51 L98 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:53:y:2016:i:c:p:28-39

DOI: 10.1016/j.eneco.2015.05.004

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